Crisis at United deepens
By Dave Carpenter
Associated Press
CHICAGO — United Airlines scrambled to chart a course through its financial emergency yesterday as its stock went into a free fall on expectations of a bankruptcy filing, an action that its chief executive insisted was not a foregone conclusion.
Associated Press
But sources familiar with the process, who spoke on condition of anonymity, said United was preparing to file for bankruptcy Sunday.
United Airlines stock lost two-thirds of its value yesterday amid rampant speculation that the carrier can do nothing except file for bankruptcy. Dow Jones & Co. removed UAL from the Dow Jones transportation average because of the stock plunge.
The carrier was finalizing the terms of a $1.5 billion debtor-in-possession loan, the sources said. The loan would enable the airline to keep flying in bankruptcy.
A day after losing its bid for government assistance, United executives also met with union leaders and consulted with a key airline ally overseas.
Shares in parent UAL Corp. lost two-thirds of their value in response to the Air Transportation Stabilization Board's decision late Wednesday not to provide a $1.8 billion loan guarantee.
Trading in the stock was halted for the session's first four hours yesterday, while the New York Stock Exchange reviewed UAL's qualifications to continue being listed. In heavy afternoon trading, shares plunged $2.12, or 68 percent, to $1 — the lowest level in decades.
Standard & Poor's further downgraded United's corporate credit ratings following the "disappearance of any realistic possibility" of paying off deferred debt and avoiding bankruptcy.
United, with about $1 billion in cash, has $920 million in overdue debt obligations.
"The ATSB's decision will almost certainly lead to a Chapter 11 bankruptcy filing by UAL and United as soon as United has completed arrangements (to pay for operations while in bankruptcy)," S&P credit analyst Philip Baggaley said — an opinion echoed by many others.
CEO Glenn Tilton, after a meeting with leaders of the pilots' union that holds the largest single stake in the airline, declined to say whether United will file for bankruptcy but said it is not inevitable.
"What we have said is we're going to consider all of our options and nothing really is a foregone conclusion," he told Chicago's WLS-TV.
He also tried to calm passenger worries, saying the company is "going to be much better for this experience — absolutely no doubt about it."
The $1.5 billion debtor-in-possession financing would enable the carrier to continue operations while restructuring under bankruptcy-court protection. The lead lenders involved in the negotiations are J.P. Morgan, Citigroup, Bank One and GE Capital, a unit of General Electric, sources said.
The ATSB ruling left open the possibility United could seek loan assistance later by presenting an improved business plan. Industry experts said there's seemingly no chance anything could be secured immediately, which United needs to avert bankruptcy.
"I can't imagine them avoiding it unless someone writes them a check for $2 billion," said analyst Ray Neidl of Blaylock and Partners.
Germany's Lufthansa, which along with United belongs to the 14-member Star Alliance of airlines, said it was in talks about offering assistance to its embattled partner. But it's improbable that Europe's No. 2 carrier could pitch in enough to help United dodge bankruptcy.
If United does file for Chapter 11, its shares would become almost worthless and a bankruptcy court judge overseeing its overhaul could order far steeper cuts than the carrier has proposed. Analysts say United's planned 6 percent reduction in capacity next year may be doubled and thousands of additional layoffs are likely from United's work force of 83,000, already down from around 100,000 since the Sept. 11 attacks.
Because of the stock plunge, Dow Jones & Co. removed UAL from the Dow Jones transportation average and replaced it with United Parcel Service Inc.
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• Headquarters: Chicago • Employees: About 84,000, including 8,767 pilots, 22,294 flight attendants and about 37,000 machinists' union members. • Hub airports: Chicago, Denver, Los Angeles, San Francisco, Washington • Daily flights: About 1,800 • Daily passengers: About 172,133 • Hawai'i daily flights: About 20, more than any other U.S. carrier, with about 20 percent of the market. • Hawai'i employees: About 1,200 statewide including workers at a Honolulu reservations center. • Hawai'i code-share partner: Aloha Airlines
United Airlines developments Flights and ticket sales will continue as usual. The carrier has no plans to drop routes. "We will continue to fly our full schedule," said United spokesman Jeff Green. "Nothing has changed for our customers. Their frequent-flier miles will be honored, their tickets will be honored. That's something that won't change even should we file for Chapter 11 (bankruptcy protection) at some point." • If United files for bankruptcy, it gains protection from its creditors but loses control of its restructuring, and its shares are almost certain to become worthless. • Over the long run, as United works to become profitable, the airline may ground more planes, drop service to some markets, eliminate unprofitable international routes and reduce the number of cross-country flights. • Experts say consumers' frequent-flier miles probably are safe. Frequent-flier programs are one of the airlines' best marketing tools and unlikely to be suspended even in bankruptcy court. It's possible they could be tightened to require more miles. • American Airlines, Delta Air Lines Inc. and Continental Airlines Inc. would be expected to be among the biggest winners in gaining market share. • Consumers likely would face fewer seats and slightly higher fares.
United Airlines at a glance
